Telephony / April 14, 1997
By Larry Luxner
In a surprise move, Puerto Rico's Government Development Bank announced Monday it would sell 100% of state-owned Puerto Rico Telephone Co. -- clearing the way for local phone competition to come at last to this U.S. island possession in the Caribbean.
The proposal, which faces bitter union opposition, is a direct consequence of the Telecommunications Act of 1996, and must be approved by the Puerto Rico Legislature.
"The new act opens the market to competition, and PRTC -- being a government-owned company -- is subject to so many government rules and regulations that it will not have the same ability to compete as do private companies entering the local market," said Juan Velázquez, PRTC's vice-president for regulatory affairs.
The company, with 1.6 million lines in service, is the 12th largest telco in the United States. In 1974, the Commonwealth government bought the company from ITT Corp. for $165 million, and in 1989 created a subsidiary, Telefonica Larga Distancia (TLD), to compete for a share of the $200 million long-distance market between Puerto Rico and the U.S. mainland.
In 1990, Gov. Rafael Hernández Colón attempted to sell PRTC to Atlanta-based BellSouth International, but the deal was stymied by labor unions opposed to privatization, and by a law that required PRTC to be sold for at least $3 billion and prohibited the buyer from firing any employees for 18 months. Two years later, the government did manage to sell a majority stake in TLD to Madrid-based Telefonica de España for $142 million.
At the moment, Puerto Rico has a teledensity of about 37 lines per 100 inhabitants -- far higher than anywhere else in Latin America, but lower than the U.S. mainland average of 54 per 100.
Not surprisingly, Telefonica de España -- which has bought up phone companies in Argentina, Chile and Peru -- is considered a front-runner for PRTC. So is GTE Corp., which owns the national phone monopolies of nearby Venezuela and the Dominican Republic. Other strong candidates include Bell Atlantic-Nynex (because of the high volume of calls between Puerto Rico and the New York area) and BellSouth.
This time, pro-statehood Gov. Pedro Rosselló isn't putting a minimum price on PRTC, though analysts say the company could fetch anywhere from $2.2 billion to $3.4 billion (based on an industry guideline of $2,000-3,000 per line). Last year, PRTC's revenues exceeded $1.1 billion, and profits came to $106 million. Earnings were down because of a dramatic reduction in intra-island long-distance rates -- a pre-emptive strike against private firms like AT&T, Sprint and TresCom that are gearing up to enter the $230 million market.
"We do not foresee [privatization having] any major impact on consumers such as higher tariffs, because the company has been profitable," said Velázquez. "Basically, whoever buys PRTC is subject to the same federal rules as any company in the United States, since Puerto Rico -- for FCC purposes -- is like any state."
Although Velázquez claims nobody will be laid off as a result of the sale, PRTC's 8,000 employees aren't buying that. The company's two largest unions, the Brotherhood of Independent Telephone Workers and the Independent Union of Telephone Workers -- swear they'll "wage the fight of the century" to stop the privatization from going through.